November 17, 2010

The Death—and Reinvention—of Management: Part 1

I have prepared a synthesis of the thinking in a whole host of recent management books that propose the reinvention of management, including: Reinventing Management by Julian Birkinshaw, Reorganize for Resilience by Ranjay Gulati, The Power of Pull by John Hagel, John Seely Brown and Lang Davison, Delivering Happiness by Tony Hsieh, Peak by Chip Conley, Employees First, Customers Second by Vineet Nayar, Drive by Dan Pink, The Design of Business by Roger Martin, The Dragonfly Effect by Jennifer Aaker and Andy Smith, Empowered by Josh Bernoff and Ted Schadler, Open Leadership by Charlene Li, Enterprise 2.0 by Andrew McAfee, Succeeding with Agile by Mike Cohn, Buy-In and A Sense of Urgency by John Kotter, as well as my own book, The Leader’s Guide to Radical Management.

While doing full justice to none of the books individually, the article draws out the common themes in all of the books so as to make this stream of thinking more accessible to a broader audience.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

THE DEATH—AND REINVENTION—OF MANAGEMENT

What are we to make of a rash of recent books suggesting that management as we know it today is seriously problematic? According to Matthew Stewart, management is “a myth”. Professor Julian Birkinshaw of the London Business School tells us that management has “failed”. According to Alan Murray of the Wall Street Journal, we are looking at “the end of management”, while CEO Jo Owen has written about “the death of management”.

Gary Hamel tells us that ““Management was originally invented to solve two problems: the first—getting semiskilled employees to perform repetitive activities competently, diligently, and efficiently; the second—coordinating those efforts in ways that enabled complex goods and services to be produced in large quantities. In a nutshell, the problems were efficiency and scale, and the solution was bureaucracy, with its hierarchical structure, cascading goals, precise role definitions, and elaborate rules and procedures... Equipping organizations to tackle the future would require a management revolution no less momentous than the one that spawned modern industry.”

Five Fundamental Shifts in Management Practice

Overall, we have strong evidence that current management practices represent a set of economic, social and political problems of the first order,[i] which are unlikely to be resolved by a single fix, such as getting more employee buy-in, or instilling a sense of urgency, or introducing new technology platforms.

In reinventing management, five fundamental and interdependent shifts need to occur:

1. The first shift stems from a monumental transition in the power balance between seller and buyer: to management's astonishment, the buyer is now in the driver’s seat. As a result, the firm’s goal has to shift to one of delighting clients: i.e. a shift from inside-out (“You take what we make”) to outside-in (“We seek to understand your problems and will surprise you by solving them”).

2. The second shift stems from the first transition, as well as the epochal transition from semi-skilled labor to knowledge work. Again to management's astonishment, traditional hierarchy suddenly doesn’t work anymore. The role of the manager has to shift from being a controller to an enabler, so as to liberate the energies and talents of those doing the work and remove impediments that are getting in the way of work.

To support and sustain those two shifts, three other shifts are necessary:

3. The mode of coordination shifts from hierarchical bureaucracy to dynamic linking, i.e. to a way of dynamically linking self-driven knowledge work to the shifting requirements of delighting clients.

4. There is a shift from value to values; i.e. a shift from a single-minded focus on economic value and maximizing efficiency to instilling the values that will create innovation and growth for the organization over the long term.

5. Communications shift from command to conversation: i.e. a shift from top-down communications comprising predominantly hierarchical directives to communications made up largely of adult-to-adult conversations that solve problems and generate new insights.

Individually, none of these shifts is new. Each shift has been pursued individually in some organizations for some years.However when one of these shifts is pursued on its own, without the others, it tends to be unsustainable because it conflicts with the goals, attitudes and practices of traditional management. The five shifts are interdependent.

When the five shifts are undertaken simultaneously, the result is sustainable change that is radically more productive for the organization, more congenial to innovation, and more satisfying both for those doing the work and those for whom the work is done.

Shift #1: New goal: From inside-out to outside in

Traditional management has encountered problems, not because managers have forgotten how to manage, but rather because the world has changed and management practice hasn’t. Among the most important changes in the marketplace is the shift in the balance of power from seller to buyer. Fifty years ago, large corporations were essentially in control of the marketplace. No longer. The advent of global competition, customers’ access to reliable information and their ability to communicate with each other has meant that the customer is now in command.

To succeed in this marketplace, Reorganize for Resilience makes the case that firms must shift from an inside-out perspective (“We make it and you take it”) to an outside-in perspective , “We seek to understand your problems and will surprise you by solving them.” The shift goes beyond the firm paying more attention to customer service: it means orienting everyone and everything in the firm on providing more value to customers sooner.

The shift was foreshadowed in 1973, by Peter Drucker when he wrote: “There is only one valid definition of business purpose: to create a customer. . . . It is the customer who determines what a business is. It is the customer alone whose willingness to pay for a good or for a service converts economic resources into wealth, things into goods. . . . The customer is the foundation of a business and keeps it in existence.”

In 1973, it was enough for an organization to have a customer—someone who is willing to pay for the good or service. In today’s more intensively competitive world, merely having a customer who is willing to pay for the good or service is a precarious existence for any firm. The key to an enduring future is to have a customer who is willing to buy goods and services both today and tomorrow. It’s not about a transaction; it’s about forging a relationship. For this to happen, the customer must be more than passively satisfied.

Different writers have described the shift in different terms but still related to this outside-in perspective. In one version, the firm must delight the customer (The Leader’s Guide To Radical Management). In another, the firm must deliver happiness (Delivering Happiness) or even joy (Peak). In essence, what all these writers are saying is that the organization must do more than meet customer expectations: the firm must generate a continuous stream of new value to its clients that generates surprise by meeting needs that the customers may not even know that they had.Time assumes a new importance: if value can be delivered sooner, it is more likely to generate delight. As reformulated, the goal of the firm accurately mirrors the fundamental transformation in the power structure of the marketplace—or as Roger Martin has called it, a transition from shareholder capitalism to customer capitalism.

In this perspective, the purpose of the firm shifts from making money for shareholders to client primacy. The firm makes money, but this is the result of delighting the customer, not the goal. As Martin has pointed out, when the firm aims single-mindedly at making money for its shareholders, then it is drawn towards doing the very things that will lose money for the shareholders in the medium term. As Reinventing Management notes, the principle of obliquity applies: an indirect goal (delighting clients) is more apt to make money than a direct focus on money-making.

Continuously generating more value for customers is not just the goal for the CEO or the marketing department: it becomes the operational goal of everyone in the organization.

For most people, the most familiar example of the shift will be Apple, which over the last ten years has with a stream of products—iPod, iMac and iPad—has delighted its customers and increased its market capitalization more than tenfold. Increasingly, the way to delight customers is not just to offer a product, like a phone, but to offer a phone like the iPhone which is a platform on which users can choose their own Apps and so customize the product to their specific needs.

An exemplar on a smaller scale is Zappos.

Zappos is a web-based shoe store that became a billion dollar company in ten years by focusing on delighting the customer. Its CEO, Tony Hsieh, explains how this works: Zappos runs its warehouse 24/7 which isn’t the most efficient way to run a warehouse but it is the way in which Zappos can delight its customers. When a customer orders by midnight EST, and asks for (free) two-day shipping, they are pleasantly surprised when the order shows up on their doorstep eight hours later. Everything that happens in Zappos is aimed at creating a “Wow!” experience for their customers.

In the business-to-business world, Reorganize for Resilience cites Lafarge North America as an exemplar. (Lafarge is a French industrial company specializing in cement, construction aggregates, concrete and gypsum wallboard. It currently is the world's largest cement manufacturer by mass.)

Lafarge North America went from an inside-out attitude (You buy the cement we sell) to an outside-in perspective of solving customer problems. As they learned more about their customers’ needs, they discovered a mix of products and services that would help solve customers’ problems, as well as opportunities to create new offerings. Some offerings were customized for particular customers, while others were scalable platforms for large groups of customers.

Some writers assume that if management gets out of the way then empowered workers will automatically direct their energies towards adding new value for clients. However a more sustainable approach recognizes the reality that human beings are a varied bunch. Several books, including The Leader’s Guide to Radical Management and The Ultimate Question insist that the firm should trust but also verify, by making the goal of adding new value for clients explicit and systematically measuring whether it being met.

Shift #2: New role for managers: From controller to enabler

Focusing on continuously adding new value for clients requires a change in the way work is carried out, because a traditional bureaucracy was not designed for innovation or delighting clients. It was designed to produce consistent performance from largely non-skilled workers. This is one reason why efforts by traditional management to enhance customer focus have tended to flounder. The other is that as work increasingly became knowledge work, bureaucratic practices undermined a key ingredient of productivity: worker morale.

To reach the new level of performance, the organization has to empower those doing the work, so as to facilitate collaboration, rapid learning and innovation. The result is a dramatic shift in the role of the manager from controller to enabler. Instead of the workers reporting to the managers, the managers are accountable to those doing the work and for removing any impediments that are hindering the work. This reversal of polarity recognizes that the engine of productivity, innovation and creativity resides in the energy and ideas of the people doing the work, working together across boundaries, drawing on new technology, to become more productive and innovative. Enabling talent unlocks passion and energy. This means that managers must inspire, motivate, encourage collaboration and make the workplace meaningful.

20th Century thinking drew a distinction between leaders (who articulated goals and inspired change) and managers (who got things done). In the new role for managers, the distinction dissolves: managers have to be leaders. They must articulate goals, inspire change and remove impediments. It is the workers--those doing the work--who get things done.

An exemplar of the approach is Vineet Nayar, the CEO of HCL, a software services company headequartered in India. Nayar saw that the people doing the work were the ones who created value for the customers. Taken together they created the value zone within the organization. Without them, the firm was nothing but a shell, layers and layers of management and aggregators who had nothing to offer to the customers. The management didn’t live in the value zone or anywhere near it. Often, management got in the way of creating value. Management had to stop wasting the employees’ time by requiring them to make endless presentations about irrelevant things and write reports about what they had or had not done and start supporting them and enabling them to create more value for customers. In this way, the value zone becomes the center of the organization.To implement his thinking, Nayar introduced a number of changes, including allowing all staff in the organization to make inputs into the evaluation of managers at all levels.

Another example is Li & Fung:

Li & Fung is a $15 billion company, headquartered in China and orchestrating 14,000 factories in China and around the world. Li & Fung owns practically nothing. Its role is to figure out a way to orchestrate factories, so that by coming together, they can achieve performance that they could never achieve individually. All are working on extreme specialization. For example, to manufacture a particular garment, Li & Fung might source the yarn from Korea, dye it in Thailand, weave in Taiwan, cut it in Bangladesh, assemble it in Mexico, and bringing zippers from Japan and come up with something that is better than anyone else in the world can do.

The language used to articulate the new role of managers is varied and includes: "scalable learning and collaboration through open pull platforms in which people are encouraged to get access, attract resources and create" (The Power of Pull); “networks of self-organizing teams” (The Leader’s Guide to Radical Management); “putting employees first” (Employees First, Customers Second); “autonomy” and “intrinsic motivation” (Drive); "design thinking" (The Design of Business) “distributed, democratic, self-managing” (Open Leadership); “empowerment” (Empowered). Despite the differences in terminology, the common theme of all these books is the idea of mobilizing the energies and talents of those doing the work so that they become more productive, more creative, more collaborative, and more able to learn and innovate quickly.

The raison d’être for the very existence of the firm shifts from the reduction of transaction costs behind walls and tight control to scalable collaboration, learning and innovation.

Shift #3: New coordination: From Bureaucracy to Dynamic Linkage

One of the great achievements of the modern firm was disciplined execution with scalability. Very large numbers of people could work together and achieve consistent results. Through the use of detailed plans, rules and processes, management specified both the goal and the methods for achieving that goal was to be achieved; progress was systematically tracked by reports to managers, so that any deviations could be identified and if necessary punished.

In today's workplace, this leads to several major problems. First, bureaucracy is inherently demotivating, and in knowledge work, motivation is the key to productivity. Secondly, this way of working is not good for innovating in a world in which innovation is critical. Third, bureaucracy isn’t agile enough to delight clients, cope with social media or adjust to the quicksilver changes in today’s marketplace. As a result, efforts by firms to become more customer-focused or to establish autonomous teams tend to come undone when they encounter the bureaucratic methods of coordination used by traditional management.

To mesh the efforts of autonomous teams and client focus while also achieving disciplined execution requires a set of measures that might be called “dynamic linking”. The method began in automotive design in Japan and has been developed most fully in software development with approaches known as “Agile” or “Scrum”.

“Dynamic linking” means that (a) the work is done in short cycles; (b) the management sets the goals of work in the cycle, based on what is known about what might delight the client; (c) decisions about how the work should be carried out to achieve those goals are largely the responsibility of those doing the work; (d) progress is measured (to the extent possible) by direct client feedback. The most complete articulation of the practices of dynamic linkage in software development are set out in Succeeding with Agile, and as applied to general management in The Leader’s Guide to Radical Management.

As The Power of Pull points out, one proceeds “by setting things up in short, consecutive waves of effort, iterations that foster deep, trust-based relationships among the participants… Knowledge begins to flow and team begins to learn, innovate and perform better and faster.… Rather than trying to specify the activities in the processes in great detail.., specify what they want to come out of the process, providing more space for individual participants to experiment, improvise and innovate.”

Shift #4: From Value to Values

Given its goal of making money for shareholders, the traditional organization was preoccupied with value, rather than values. Douglas Smith, in On Value and Values notes that “[v]alue connotes a pointed estimation of current or anticipated worth never too distant from monetary equivalence. There is no value that is not a dollar value….The plural, ‘values’, is very different from the singular, ‘value’. Values are estimations not of worth but of worthwhileness. Unlike value, talk of values ignores money; it opines on timeless appraisals instead of transient ones. There is a deep backward- and forward-looking quality to values. If value is what makes us wealthy, values, we assume and regularly assert, are what make us human.”

In the traditional organization, a preoccupation with value encouraged firms to cut costs and eliminate the very things that are needed to generate the future and instead to pursue “bad profits”, i.e. profits made at the expense of customers. Such tactics are dangerous in today’s world: when customers know everything about a company, the increased transparency has effectively changed the rules of business forever.

When the firm's goal shifts from making money for shareholders to providing more value to customers, there is a necessary shift from a preoccupation with value to a preoccupation with the values that will grow the business by generating innovation and customer delight.

The Power of Pull, Open Leadership, The Dragonfly Effect, and The Leader’s Guide to Radical Management thus point to the need for consistent adherence to values that are aligned both with delighting the client and motivating autonomous teams—radical transparency and continuous improvement, trust, honesty, caring for the environment and openness to outside ideas.

Shift #5: Communications: From command to conversation

In his classic study of 1992, anthropologist Alan Fiske pointed out that three elementary social relationships dominate human relationships in all cultures: social norms, authority ranking, and market pricing.[ii]

The challenge for managers today is that in trying to elicit the energies, imagination, and creativity of their workers, they need to communicate predominantly through the langauge of social norms, against a history in organizations of relationships dominated by hiearchy and to a lesser extent by market pricing.

The tensions among these three domains are significant. The hard, sharp edges of money-based discussions or the sneer of cold command can slice through the warm, convivial world of social norms like a knife and kill it on the spot.

To be operative, social norms have to be front and center at all times in the relationship. That’s because social norms are allergic to communications that smell of hierarchy or market pricing . Studies show that the mere mention of money or pulling rank is enough to kill the warmth and conviviality of a social relationship. Even thinking about money is enough to make people less willing to help others.

Consequently management in the 21st Century requires a shift in the mode of communication from command to conversation, with adult-to-adult interactions, human being to human being, using stories, metaphors and open-ended questions. Authentic leadership storytelling has an important role to play, particularly in dealing with social media.The type of communication is discussed in Open Leadership, The Dragonfly Effect, and The Leader’s Guide to Radical Management.

Bottom line: Alignment

None of these five shifts is new in itself. As The Leader’s Guide to Radical Management shows, what is new is putting all five shifts into operation at once.

If a firm tries to achieve customer delight through a bureaucracy, it doesn’t work. If the firm tries to harness the creativity of autonomous teams without an explicit focus on customer delight, the risk of misdirected effort is high.

If a firm embraces customer delight and autonomous teams, without dynamic linkage, it runs the risk that bureaucratic procedures will undermine all its efforts.

Even if a firm embraces the goal of customer delight, autonomous teams, and dynamic linkage, it will still face problems unless it also has the appropriate focus on values rather than value and communicates those values and goals through conversations rather than commands.

The agenda of five simultaneous shifts is strenuous but it offers significant benefits. When well executed, it generates simultaneously high productivity and continuous innovation and disciplined execution and deep job satisfaction and client delight.

In the end, the gains are accomplished by a transition from a focus on things to a focus on people—a people-centered goal, a people-centered role for managers, a people-centered coordination mechanism, people-centered values and people-centered communication.

Should we be surprised that the 21st Century is not about things, but about people?

I like this post. I think that emphasis on Shift #4 is particularly important, especially since culturally, values are rapidly changing. I think in this day, with the schism between the worker and the manager, there's definitely an importance for human resources. It's something that outlined in Andria Corso's From Gatekeeper to Trusted Advisor which emphasizes on HR's importance.

Steve, at first I was skeptical that you could synthesize these books into five key trends, but by the end of the post I'm impressed. Any organization that ignores these shifts will soon become irrelevant.

This is very nice roundup of the five most important levels on which an organisation should focus on. I like the way you wrote this with a great deal of objectiveness towards the different books and points of view you try to summarize.
This will prove a very difficult challenge for most companies, but a challenge they all face.

Viva la revolution! Intuitively, I have always know that there was something wrong with every company that I ever worked for no matter how good their product, service or public image. You have perfectly described the company that I would like to work for. Where do I send my resumé? . I would also like to see the government run in this fashion. After all, shouldn't that be the purpose of government? I really liked Radical Management and I can't wait to read this book as well. One note, you write Li & Phung and Li & Fung.

Delighted to see someone else noticing these trends! Although you speak here mainly about the transition from an Analytic mindset to a Synergistic one there are others). Please see The Marshall Model of Organisational Evolution for more details, definitions.

Also i had a question regarding Diversity and specifically women in leadership roles in companies and their boards. Would you be writing about it?

Rosabeth Kantar has written on this previously and infact while you have written about Vineet Nayar's book, he has in recent times also talked about the need for companies to improve their record on Diversity.

I particularly agree with the shift in communication from command to conversation and the people-centered focus for future success. I would add, as the author of "Metaphorically Selling,"that managers need to shift from the language of left-brain telling to the language of right brain metaphor and analogy if they want to more effectively and quickly influence, persuade, or motivate others. Metaphor is the language of instant understanding, perception change, and common ground. Communicating without metaphor in high stakes situations is like driving a Ferrari without gas. You might look good, but you won't get very far.

Actually I do quote Gary Hamel in the article. I think his Moon Shots for Management in HBR 2009 is a landmark article in the history of management: I gave it great prominence in my book and I cite it frequently. So I don't think it's fair to say that I ignore Gary Hamel's writing. The focus of the piece is on "recent books". Gary's The Future of Management was published in 2007, and so is not exactly recent, but even so, it deserves inclusion. Thanks for the suggestion.

Add an article I found very intriguing and thought-provoking: Shoshana Zuboff's "Creating Value and the Age of Distributed Capitalism". I found it in Sept. issue of McKinsey Quarterly.

All comments here are great reflections on what you have put together in a first draft. Would like you to think on creating the next article on the Individual as these shifts occur. That's the gold that must be mined wherever these new organizations are going to be developed.

Your excellent article is like heaven sent for anyone looking for valuable references to help in bringing about collaboration of groups of people who feel radical change is necessary in how communities are managed. Towns and villages considering management consolidation to save on costs and overlap are currently managed by the old boy network and they have one major flaw that is a huge barrier. BIG EGOS

I will be quoting you and your works in my letter to the local editor as the City I live is more than ready for radical change in management. It is time for new ideas and your articles are always a wealth of insight into what is needed to bring about positive long term change.

Thanks for the radical ideas. The old boy network will be cringing as the read the letter to the editor. Elections are less than two years away and we are ready for change.

Randall McCallum

Note: spotted a typo in this paragraph. Marketaplce

Shift #1: New goal: From inside-out to outside in
Among the most important changes in the marketaplce is the shift in the balance of power from seller to buyer.

This is definetely a shift that needs to happen on a large scale. Not just in business but in government, religion, social media etc. This idea of throwing everything at the problem at once to solve our major challenges is what we focus on here at www.supertrampconsulting.com this is a great way to define the shift in my book http://ivegotheart.supertrampconsulting.com thanks for your efforts to create and collaborate.

You hit the nail on the head, the word manage itself is starting to be synonymous with simply 'just getting by.' Communication has always been at its most powerful orally and in exchange, it is time for that. It is time too to increasingly trust the intangible, and energy of human connections. Thanks for this, definitely stimulated the synapses.

Enjoyed your article as I nearly always do Steve. Always frustrates me a little as I'm entrenched in a family business which is the epitome of the old fashioned firm you describe! As the new generation, I am completely outnumbered by the long term staff and current leaders, and I find it overwhelming to think about where to start making long overdue changes.

Steve - nice job, comfortable to read and most informative. Especially liked new definition of the leader/manager role wherein the roles cannot be separated. Your synthesis may encourage me to read your source material, but you know, I think your words are all I really need in my consulting/coaching work. Thanks.

I would add that fundamentally the change happens between individuals, in the detail of the way we conduct our interrelationships and our experience of them. That's why Shift 4 is so important.

That’s why I would modify the first sentence of your closing paragraph to read: "In the end, the gains are accomplished by a transition from a focus on things to a focus on what happens between people."

This is an excellent and valuable synthesis. Thank you.
I think there is one area that might be worthy of further consideration. You already highlight the dissolving of the separation of leadership and management, and the move from command to conversation, but I think there is room to focus on how managers / leaders are selected and appointed.
Firstly, in his excellent book "Selected", Peter van Vugt focuses on the fact that in our around 2 million years of walking the planet, we have only had systems where leaders were appointed, rather than selected, for around 13,000 years (less than a second if we take our hominid existence as 24 hours), and this has been largely due to the logistics of communication.
Secondly, we have a natural limit on the number of connections we can make (the Dunbar number) where close, value bound relationships can exist at close level (whether Dunbar's figure of 150 remains strictly true in the age of the web may be open to question, but it seems improbable it will be significantly larger - we can make contact, but not perhaps not increase our "empathy bandwidth")
Perhaps disengagement starts the moment we have to follow somebody, rather than want to. Technology now means we can find, identify, contact and collaborate with those who share our values, aspirations, and passions. When total connectedness bumps into serendipity, products, services and concepts get born that change the game.
Our nature is such that we cling to the familiar, and in many respects I think many of us are clinging to the driftwood of 20th century organisation as we watch the vessel sink beneath the waves.
Your take on radical management is timely and valuable, but I think it's just the start. What you, and the books you review (and I have read them all) highlight are tthe initial tremors. The upheaval they portend, handled well and confidently, have the potential to address the ridiculous assymettry of current wealth distribution. The rich will not starve, the poor might stop, and when we know that the source of happiness in not money, but sufficiency of a far wider palette, we could find our metrics of autonomy, meaning and purpose moving upward again. How good would that be?

These are wonderful points and coincide very much with my thinking. They do however represent a whole new dimension of issues and insights. They may warrant the writing of a future book. Why not? Many thanks.

Dear Steve. I love your knowledge sharing commitment. I really like your synthesis. I think you should add Michael Maccoby's book, The leaders we need and what makes us follow. His argument on changes in the social character is quite convincing. Young people hate bureaucracies as they have been independent, problem solvers, all their lives.

I grestly appreciate your article and the paradigm shift you describe requires courage and daring. You're so right to point out that integral change is necessary rather than taking 'bits' from this new paradigm, which will result in appyling tools that would stifle change and human creativity. Interestingly John Seddon in his book Systems Thinking in the Public Sector - the failure of the reform regime...and a manifesto for a better way urgently advocates a Systems Thinking approach where individuals come first, waste is reduced and responsibility replaces blame. Command and control paradigms are a thing of the past. Keep up the good work Steve and change will manifest itself .